The state Superior Court has ruled that state law does not allow for UIM recovery to offset an award against a third-party tortfeasor.
In so holding, the en banc panel abrogated the credit it had previously carved out in Pusl v. Means, overruling its decision in that case. The panel’s decision, in essence, was that the Pusl court had wrongly equated UIM recovery with first-party benefits when the specific offset provision in the Motor Vehicle and Financial Responsibility Law does not make any mention of UIM benefits. That came even though the law makes "casual reference" to UIM benefits as first-party benefits in other subchapters.
The court’s new standard can now be found in Smith v. Rohrbaugh, in which nine judges of the intermediate appellate court ruled late last month that Pusl had been wrongly decided. Judge Paula Francisco Ott wrote for the panel in Smith.
In Smith, the trial court had molded a jury’s $35,000 verdict against a tortfeasor to zero, because plaintiff Kathy Smith had settled her UIM claim for $75,000. The defendant, Linda Rohrbaugh, had argued payment of the verdict would allow Smith to earn a double recovery because the verdict fell short of the UIM award.
A three-judge panel affirmed the decision, but that ruling was withdrawn after the en banc panel granted review.
Ott noted at the outset of her analysis that the Pusl court was correct in finding that state law prevented double recovery of first-party benefits. The error in Pusl, Ott said, was that the court had incorrectly equated UIM recovery with first-party benefits, noting the subchapter of the state’s law on preclusion of recovering benefits in the MVFRL does not list UIM recovery.
"Despite the assertion in Pusl, underinsured motorist benefits are absent from the list of precludable first-party benefits described ‘under this subchapter,’" Ott said.
Ott was referring to Subchapter B, which lists — in various subsections — medical benefits up to $100,000 in coverage, work and income loss benefits, accidental death benefits, funeral benefits, combination benefits and extraordinary medical benefits exceeding $100,000.
Absent from that list are UIM benefits, which Ott conceded are still sometimes referred to as first-party benefits elsewhere because, as she put it, they are typically provided by a claimant’s own policy.
"However, colloquial reference to UIM as a first-party benefit does not mandate we add UIM to those benefits the legislature has specifically designated by statute as first-party benefits," Ott wrote in her 12-page opinion. "To do so would usurp the legislature’s power and improperly rewrite the statute."
Meanwhile, State Farm, the insurer in the case, had waived its right to subrogation against any award a jury pegged to Rohrbaugh.
The ruling was one of the most important UIM decisions in the last five years, said Scott B. Cooper, president of the Pennsylvania Association for Justice and the plaintiff’s attorney on appeal in this case.
Cooper said the decision prevents third parties from taking advantage of the court system with low-ball settlement offers and delay tactics in light of Pusl.
Defendants, Cooper said, would stall litigation hoping the UIM claim would settle, then settle for a small amount or defend their cases to verdict, and then simply collect their credit. If the insurer had waived subrogation, then the tortfeasor was "playing with house money," Cooper added.
In turn, the attorney who first represented the plaintiffs at trial said plaintiffs could not settle UIM claims.
"If you settle the UIM and then the tortfeasor comes and gets a credit, you’re just taking with one hand and giving it back with the other," said Lancaster attorney Christian E. Eaby.
Eaby noted his case was factually different from Pusl because of the subrogation waiver, but was pleased the court overrruled Pusl.
There is no indication whether the en banc panel’s decision in Smith will be appealed to the Supreme Court (the defendant’s attorney did not return a call requesting comment), but the case serves to untangle some competing precedent on the offset of UIM coverage against other benefits.
The split Superior Court panel in Pusl had decided that case in 2009 based on the court’s reasoning in Tannenbaum v. Nationwide. But the Supreme Court subsequently reversed that decision after Pusl came down.
Here’s how everything played out:
When the Superior Court had Tannenbaum back in 2007, it ruled that disability benefits paid for by the claimant, and from a source independent of his or her auto insurance policy, were not subject to Section 1722 preclusion. In other words, no offset.
Ott noted the Pusl court took that to mean that any benefits that were not from an independent source — benefits from within the policy, for example — were, in fact, subject to Section 1722 preclusion. In other words, UIM.
In 2010, the Supreme Court denied review in Pusl.
That same year, the high court then reversed the Superior Court in Tannenbaum, ruling that uninsured and underinsured motorist benefits could be offset by disability benefits. In other words, the standard that was used to decide Pusl was, at least in part, incorrect.
Writing for the majority, Justice Thomas G. Saylor said that, on its face, Section 1722 "reflects the legislature’s intent to shift a substantial share of the liability for injuries caused by uninsured and underinsured motorists from automobile insurance carriers to collateral source providers (many of which previously held subrogation interests), obviously with the aim to reduce motor vehicle insurance premiums."
Ott noted that, while imposing the offset in Smith would accomplish the goal of keeping premiums low, the panel refused to disregard the language in the statute.
A Battle Won But A War Lost
For Cooper, Tannenbaum reflected third parties winning the battle but losing the war.
It came down to the last paragraph in Saylor’s opinion in Tannenbaum, in which he noted that a UIM offset to disability benefits may apply unless there is a subrogation clause in the insurance policy.
So when Cooper argued Smith, he employed that reasoning to get Pusl overruled.
"[The benefits] got offset because these are work loss benefits that you can’t recover unless there’s a subrogation clause," Cooper said. "If there’s subrogation, they have to pay the money."
Cooper added that most policies have subrogation clauses.
In Smith, according to the opinion, the trial court voided the agreement between Smith and State Farm to waive subrogation rights.
"In essence, molding the verdict to zero granted State Farm the subrogation it waived," Ott said.
Ott added that her statutory interpretation had already disposed of the matter, but wrote briefly to agree with Smith’s position.
"In this instance, the waiver of subrogation rights may have disadvantaged State Farm, but State Farm is a sophisticated party and is free to enter into an agreement that might prove financially improvident," Ott said.
The case dates back to 2006, when Rohrbaugh rear-ended Kenneth Smith, causing his car to hit the one in front of his. Smith, now deceased for causes unrelated to the accident, filed a claim for UIM benefits, which settled for $75,000.
He followed with a lawsuit against Rohrbaugh in 2008 alleging negligence, loss of consortium and punitive damages. Following a two-day trial, the jury entered a $50,000 verdict. That award was molded to $35,000 because Smith had already received $15,000 in work loss benefits.
Then, after post-trial motions, the entire award was molded to zero under Pusl.
But the en banc panel was unanimous in overruling Pusl and reinstating the jury award.
Judge David N. Wecht wrote a concurring opinion, mostly to address which of the plaintiff’s costs were taxable against Rohrbaugh. But the court’s newest jurist made a note at the end of his 11-page opinion to explain his own sense of why Pusl did not work.
"I would add to the majority’s learned analysis that the trial court’s interpretation of Section 1722 would lead to the absurd, and indeed incoherent, result that UIM benefits must be used to offset UIM claims," Wecht said. "That is, if UIM claims were, sub silentio, to be read into Section 1722 as precludable benefits, then ‘in any … [UIM] proceeding, arising out of the maintenance or use of a motor vehicle, a person who is eligible to receive benefits under [UIM coverage] … shall be precluded from recovering the amount of benefits paid or payable under this subchapter.’"
"How a UIM recovery might be used to offset or preclude a UIM claim arising from the same occurrence is beyond me," Wecht said. "We cannot interpret a statute in such a way that it eats its own tail."
Richard H. Wix of Wix, Wenger & Weidner in Harrisburg represented Rohrbaugh and did not return a call requesting comment.
(Copies of the 23-page opinion in Smith v. Rohrbaugh, PICS No. 12-1852, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •